SINGAPORE VIEW OF TRADE AND INVESTMENT WITH IRAN

S E C R E T SECTION 01 OF 02 SINGAPORE 001217 SIPDIS DEPARTMENT FOR EAP/MTS M. COPPOLA E.O. 12958: DECL: 12/18/2019 TAGS: ETRD EINV ENRG ECON PREL KNNP IR SN SUBJECT: SINGAPORE VIEW OF TRADE AND INVESTMENT WITH IRAN REF: A. 08 SINGAPORE 1315 ¶B. SINGAPORE 1159 ¶C. KUALA LUMPUR 867 SINGAPORE 00001217 001.2 OF 002 Classified By: E/P Counselor Joel Ehrendreich for reasons 1.4 (b)/(d) ¶1. (S) SUMMARY: Singapore maintains positive economic relations with Iran and would be open to expanded economic ties, though Singapore is mindful of proliferation issues and international sanctions, Government of Singapore (GOS) officials told Emboffs. Singapore has engaged Iran in the context of a larger outreach effort to the Middle East. Bilateral trade between Singapore and Iran is estimated between US$2-3 billion, but most of the trade is in petroleum or petroleum products and there is a significant trade imbalance, with few Singaporean exports bound for Iran. Iranian businesses are struggling to survive under the isolation imposed by sanctions and have approached the GOS and Singaporean firms for investment and financing for projects. Political uncertainty in Iran, sanctions and lack of trade finance have impeded expanded trade and investment ties. Tensions exist between Iranian business and the Iranian government, but the Iranian business community appears to have little influence on the political situation, GOS officials assessed. Singapore exports water and environmental technologies to countries in the Middle East and North Africa, but Singapore adds little value to Iran as a bridge to Asia, because China is already so deeply involved in Iran. Iran has broader ties to Malaysia than it has with Singapore. End Summary. Singapore's Middle East Engagement -------------- ¶2. (C) In 2004 Singapore launched a new policy of greater engagement with the Middle East, including Iran, primarily for economic reasons, Ariel Tan, MFA Deputy Director of the Middle East, North Africa and Central Asia Directorate, told Econoff. The policy shift was prompted by a realization that Singapore needed to better understand the Middle East, but Tan noted that Singapore was also drawn by the region's oil wealth. Singapore is still learning its way around the region. However, Iran, other Gulf states, and North African countries recognize "the Singapore brand," particularly as it refers to Singapore's technological achievements, "e-government" (except Iran),and as a potential investment partner, Tan added. Singapore's expertise in oil refining and water technology is a natural inroad into the region, KWANG Koon Way, Deputy Director of the Ministry of Trade and Industry's (MTI) Middle East and North Africa Division told Econoffs. Singapore firm Hyflux, which designs and builds desalination plants, won the contract to build the world's largest desalination plant in Algeria, reportedly beating other bidders from the UK, Japan and United States. Singapore signed a Free Trade Agreement with the Gulf Cooperation Council in December 2008 (Ref A). Current Bilateral Trade with Iran -------------- ¶3. (C) Bilateral trade between Singapore and Iran amounts to between US$2-3 billion, but there is a substantial trade imbalance. Imports to Singapore, mostly refined petroleum products, crude, and hydrocarbons, but also including dried fruits and nuts, are about twice the value of Singapore's exports to Iran, which include refined petroleum products, pumps, heating equipment, iron pipes and aluminum. The GOS does not actively encourage companies to invest in Iran, leaving firms to make their own decisions about foreign business opportunities, MFA's Tan said. However, in October Singapore's non-resident ambassador to Iran, ONG Keng Yong, joined an 18-member business delegation to Iran that included representatives from the oil and gas, IT, engineering and construction sectors. Ambassador Ong decided to join the delegation once the trip was planned, but MFA did not initiate the visit, Tan stated. Exploring Economic Opportunities in Iran -------------- ¶4. (C) MTI officials described the October business mission to Iran as exploratory, noting that it was the first such SINGAPORE 00001217 002.2 OF 002 trip to Iran since 2004. Singapore businesses joined the delegation to better understand the Iranian market and because they did not feel comfortable traveling to Iran outside of an organized group, Cody Lee, Director of the Middle East and Africa division of the Singapore Business Federation (SBF) told Econoffs. Singaporean companies see export opportunities in urban solutions, environmental solutions, and consumer goods due to Iran's large population. Lee and Kwang also said that Iran has been seeking new rice imports because they had an issue with the quality of rice coming in from one of Iran's rice supplier countries. However, the lack of trade financing has hampered growth in trade, Lee said. Local businesses have complained to SBF because banks in Singapore will not extend lines of credit to Singapore firms seeking to do business with Iran. There are no branches of Iranian banks in Singapore (Ref B). ¶5. (S) Iranian businesses seek inbound investment, especially in infrastructure projects, and offer incentives such as land, but they have limited money to implement projects, Lee stated. Singaporean businesses are apprehensive about investing in Iran because of sanctions, political uncertainty, and the lack of transparency in the market, Lee said. MFA's Tan indicated that Iran's ambassador to Singapore has reached out to the GOS to encourage more investment in Iran. MFA has conveyed to Iran its concerns about proliferation issues and cooperation with the International Atomic Energy Agency, Tan said. Iran's Struggling Businesses -- Incentive for Change? -------------- -------------- ¶6. (S) MTI and SBF officials said that they have observed tension between the Iranian business community and the Iranian government. Iranian businesses are struggling to survive and eager to have greater trade and investment ties outside of Iran, but MFA and MTI officials could not judge whether business people have any political influence to encourage change. MFA and MTI officials noted that the Iranian government and business community are intertwined. Efforts are underway in Iran to privatize certain sectors and companies, but the market is not transparent and it is likely that money moves from "private" companies to the government, Lee surmised. In Tan's view, Iran's nuclear ambitions have been motivated by regime preservation and there is little incentive for the Iranian leadership to change its behaviors for more outside investment. Iran does not have to look beyond China for infrastructure investment and financing, Tan said. MTI officials agreed that China is deeply involved in Iran's economy, so Singapore likely adds little value as an English-speaking bridge to Asia, the role Singapore plays for several Western countries and companies operating in Asia. GOS Observations about Malaysia-Iran Trade -------------- ¶7. (S) Singapore's total bilateral trade with Iran is greater than Malaysia's trade with Iran, which is approximately $1.2 billion (Ref C). However, MFA and MTI officials asserted that Malaysia has other, broader ties to Iran. MFA's Tan estimated that about 50,000 Iranians live in Malaysia, whereas MFA and MTI said they knew of very few Iranians living in Singapore. Malaysia allowed an Iranian bank to set up offshore, Tan added, predicting that Malaysia would be in a better position than Singapore to take advantage of opportunities if sanctions against Iran eased. SHIELDS Visit Embassy Singapore's Classified website: http://www.state.sgov.gov/p/eap/singapore/ind ex.cfm